Offshore outsourcing backlash: Much ado about little?

Analysts and an IT trade group claim that the U.S. has a lot to gain and little to lose with offshore outsourcing. But the companies that have the most to gain may be fueling the backlash fire with their silence.

LAS VEGAS -- Statistics show that the backlash in the U.S. over offshore outsourcing isn't really deserved, according to an IT trade organization that claims the positives far outweigh the negatives. But a grass-roots group representing workers feels that American companies are heading offshore for the wrong reasons.

A lot to gain, a little to lose

Jeff Lande, senior vice president at the Arlington, Va.-based Information Technology Association of America (ITAA), told attendees at Gartner Inc.'s Outsourcing Summit that of the roughly 10 million IT workers in the U.S., 372,000 have lost their jobs in the last four years, mostly due to overhiring in the '90s, the dot-com meltdown and the recession. Lande claimed that only 104,000 of those jobs were lost to offshore outsourcing.

I'd say that in 99.9% of all cases, the answer is not taking everything offshore.
Joe Hogan
VPHP Worldwide Managed Services

"Offshoring won't even represent a significant minority of American jobs lost," he said. The bottom line is, offshoring is very positive. It will increase jobs in every sector in every state."

Lande claimed that offshoring will decrease inflation and increase everything from R&D and the GDP to business investment, real wages and consumer spending. "By 2008, you're going to see offshoring add 400,000 jobs on top of the jobs that will have already been created," he added. "There's no question the U.S. is benefiting."

"The [anti-offshoring] hysteria is way overblown," said Kevin Parikh, Gartner vice president of strategic sourcing practice. "The real number of jobs we're talking about is very small. Most of the people who've been impacted by offshore outsourcing are being re-absorbed into the economy at about 95% of their salary."

Joe Hogan, vice president of marketing for worldwide managed services for Hewlett-Packard Co., one of ITAA's many high-profile tech company members (including Indian outsourcing mammoths Infosys Technologies Ltd., Satyam Computer Services Ltd. and Wipro), said that offshoring is just a component of a broader outsourcing strategy -- and that HP utilizes the offshore model only where it makes sense.

" I'd say that in 99.9% of all cases, the answer is not taking everything offshore," Hogan said.

'The dark side of it'

Ike Gittlen, coordinator of the Jobs and Trades Network (JTN), a grass-roots fair trade organization, thinks the number of IT jobs sent abroad could be much higher.

I think globalization has tremendous potential, but we're exploiting the dark side of it.
Ike Gittlen
CoordinatorJobs and Trade Network

"Nobody knows the truth because [most] companies don't voluntarily divulge any offshoring they're doing. There is an effort to pass state and federal requirements for some sort of disclosure," but companies that profit from offshoring are resisting, he said.

Gittlen isn't completely opposed to the idea of global sourcing. "I think globalization has tremendous potential, but we're exploiting the dark side of it," he said.

"This is all about chasing cheap labor," he added.

Gittlen thinks the larger issue with offshoring lies with flawed U.S. trade policies. "Some companies have to [send jobs overseas] to win a contract," he said. "We understand that people are being twisted into this because of trade policies that allow it to happen.

"We want these people to be part of a political solution that creates laws, so they don't have to make choices like this."

ITAA's Lande said that once there is a serious security or privacy breach involving a U.S. firm overseas, the offshore tide could turn and anti-offshoring legislation could have a better chance of passing. But while several states have passed offshore restrictions, Lande doesn't see any federal laws sticking.

Gittlen agreed that pushing for this kind of legislation is an uphill battle.

"We're starting to see political pressure, but it's a tough sell -- the misinformation is immense," he said. "We need more real facts. Companies need to back up their figures and open their books, but they're not going to do it."

Offshore outshhhhushing

Many attendees at the Gartner summit refused to talk about outsourcing. Parikh said that many companies hold their outsourcing plans close to their chests because they don't really know what those finished plans will look like, and they don't want to spook the staff and risk good people leaving.

"Keeping outsourcing under wraps historically has been the way to go until you know what you're doing," Parikh said. "You might protect all your employees or find a way to get them all transitioned to the provider -- at least a substantial number of them."

I don't see [technologists and developers] involved in the protests because most of them are gainfully employed
Kevin Parikh
VPGartner

This veil of reticence around outsourcing may be hindering the outsourcing business itself. Ilya Billig, vice president of marketing for Moscow-based outsourcing vendor Luxoft, said that the PR problems with outsourcing mean that customers aren't willing to talk openly about the business and its issues.

"It would benefit the whole industry if there were a central repository of data about the projects accomplished [to] help buyers qualify vendors for their projects," Billig said. "Can you collect this data? Probably not these days."

Silent geeks

While Gittlen fears that offshoring IT work could mean a lower standard of living, a dulled tech edge and the potential end of the middle class as we know it, Gartner's Parikh thinks the wrong people are complaining.

"The people who ought to be complaining are the technologists -- the software developers," he said. "I don't see them involved in the protests because most of them are gainfully employed. They may be doing something more business driven with a tech focus, but they're employed."

But one attendee, who needed repeated assurances that he was not being recorded on tape, said that many worried developers are complaining amongst themselves but are afraid to go public for fear of losing their jobs.

FOR MORE INFORMATION

Some Outsourcing Summit attendees complained that Gartner had not done its homework. Click here to read why.

Do you plan to follow all 10 steps to mastering outsourcing? Gartner says if you don't, you're doomed.

There are plenty of risks outside U.S. borders. Read 10 of them from Meta Group.

One CEO who took work abroad won't ever do that again. Click here to read his story.

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